3 Scams Contractors Use to Con Customers & How to Protect Yourself

Speaker 1: All right guys, today we're gonna talk about the different ways that contractors scam their customers. This is not theory, this is actual real world job sites, projects that I've been a part of, and I've actually seen how contractors work and manipulate behind the scenes, to screw over their customers.

Speaker 1: Now, this video's going to apply to you if you're a contractor or if you're a customer looking at working with a contractor, you're going to find some stuff in here that hopefully will help you out. One of the most important things I can tell you guys is to read the comments down below, because you're going to have a lot of contractors sharing their experiences. They know exactly what I'm talking about and they've got stories of their own.

Speaker 1: And the third type of thing you're going to get, is guys that I piss off, because I'm actually going to tell the secrets behind how they operate. Now if you're one of those guys that I piss off, do me one favor. Get off my channel and go away and never come back. But for the rest of you guys, I hope this helps you out, because some of the stuff I'm about to share is too incredible for me to even make up.

Speaker 1: So we're gonna look at three actual situations that occurred, and at the end of each situation, we're gonna analyze things that could go differently, to protect you guys from coming across the same thing. Yeah, well hopefully go differently.

Speaker 1: All right guys, some stories I can't make up, and the building over my shoulder that's hopefully out of focus, is one of those true stories that you're not going to believe. I was hired to do all the excavating and grading work on this project right here. I completed my portion of the job to the specs, and I turned my invoice in, which was $20,000. Instead of paying me, the customer decided to sue me for $40,000, exactly double what he owed me.

Speaker 1: Now this story goes even deeper and gets even crazier. This is the tip of the iceberg. He then hired a general contractor to put the frame of this building up, and he hired another excavating contractor to complete the exterior grading, because of course, I wasn't going to keep working for him. He ended up suing the guy that put the frame of the building up for exactly double what he owed him. The other excavating contractor he decided to sue for exactly double what he owed him.

Speaker 1: These other two contractors came to me and said, "What are you going to do?", and I told them, "I'm going to fight it. What are you going to do?" And they said, they're going to drop their invoices against him, in agreement that he'll drop the lawsuit against them. So in this case they got scared and ran, which is exactly what this "customer" was looking for. But the story gets even wilder yet.

Speaker 1: Why would this scenario even play out in the first place? Well for the guy that got the free building and all of the free excavating, it is almost nothing but a pure win situation. He was actually a contractor in the residential market. I opted to fight him so I hired an attorney. The attorney that I hired actually already had a lawsuit going against him, because he had gone into a residential home, got into the kitchen, got a massive down payment to remodel the kitchen to "purchase the materials" and then took all of that money, and instead of completing the work, flew to Disney World.

Speaker 1: So he was already in a lawsuit from the same attorney that I hired to collect my money, was well aware of who this guy was. Now when this guy goes to court, the reason the other contractors decided to opt out of fighting it, is because everything is against them, in this situation. He instigated the lawsuit against me, and against the other subcontractors, he has this preconceived notion, even though this isn't supposed to exist, this is the real world, there was a preconceived notion that he was the victim, and he was just trying to collect for the hardship and damages that he faced by having us do all of this free work for him.

Speaker 1: So the Judge, who only gets a small snapshot in time, right, the Judge is never out on this job site, the Judge doesn't know us, doesn't know him, the Judge can only look at this one moment in time and goes, well this guy's trying to collect 40,000, this contractor's owed 20,000, one of three scenarios is gonna happen. The Judge is going to award him $40,000, I have completed all the work and when I'm done with it, now I get to write him out a check for $40,000 to do his job for him. Massive win. Or, the Judge is going to look at us and go, oh nobody wins, maybe the Judge doesn't know it or, whatever, I don't care, I'm not the Judge, but the Judge just calls it a wash. So now this guy gets all of my work and I get zero dollars in return. Or, worst case scenario for this guy, is the Judge says, "No, you owe the contractor $20,000," and lo and behold, he just pays the bill that I'm already owed.

Speaker 1: But do you see why the other two contractors dropped their lawsuits is because the risk was not in their favor. The risk was all in this guy's favor. So we fought it, we won, but really all we won was collecting due on a bill that was owed us anyway.

Speaker 1: This is not one of those scams that can be wrapped up into a tidy little ball, but it's just an example of how far some contractors will go to work the system, and these guys know the system.

Speaker 1: So there's contractors out there that create systems specifically to hurt other contractors and potential customers, and they work these systems very well. This story was just one small tip of the iceberg. There's two more to come.

Speaker 1: And this guy would not only do it against his residential customers that he's working for, but he built his business up from doing it off from subs. Now think of it from the perspective of a subcontractor. You guys are skilled at your trade, maybe you're awesome at installing cabinets, or laying in flooring, or doing framing work, but you're not good in court. Maybe you're not good at standing in front of a whole audience of people that are going to judge you, and telling a story in a convincing manner that will allow them to rule in your favor. Maybe that's not your strength. It's not most people's strengths. This guy knows that. And he knows that most subs are going to do whatever they can to back away from a lawsuit, and rightfully so, and that's how his M.O. worked.

Speaker 1: Hopefully you guys can't tell what building that is, I'm trying to keep it out of focus. Just concentrate on me, don't actually look at that, 'cause I don't want any more trouble, because I don't know if this is the same owner or not. But this guy, that's the way he operates.

Speaker 1: So this was a pretty unique situation, but the easiest way to prevent it, is simply look at how long this guy's been around. This guy is running a sprint, not a marathon. You can't screw over contractor after contractor, and customer after customer and keep your doors open. If I would have just looked at the history of this business, it would have told me a lot of things. And one of 'em was to stay away.

Speaker 1: Scammy contractors come in all forms. The project you're about to see is what I call, The Dump N Run. When we came into this site a few years back, a contractor had came in here, excavated down this hill, dropped trees everywhere, dumped boulders all over and realized that he was getting in over his head. You guys can imagine this site, with dirt everywhere, mounds of boulders just stacked all over the place, trees dropped and falling. In fact when I first came into this site, I couldn't even come up the hill.

Speaker 1: The other contractor's mess started right here at the edge of the driveway. You had no access back in there. I ended up hauling out 150 yards of excess soil, I think 75 or 80 yards of trees, removing some of the small boulders and actually importing ones that were structural enough to hold the retaining wall.

Speaker 1: To make sure that he protected his own butt, he decided to run, leaving all his materials behind and a customer with a giant mess. That's when we came in to fix it. You're gonna find scammy contractors come in all shapes and sizes, and they have all different sorts of techniques to protect their own assets. He didn't have permits, he didn't have engineering, he didn't have the equipment, he didn't have the skills, to do a project like this. So this is a classic example of a dump n run. You're gonna find scammy contractors will use this technique when they get in over their heads, and they gotta get a way out really fast. They won't answer the phone, they'll drop everything, and they'll take off, never to be seen again.

Speaker 1: So the strategy with the dump n run contractor, and this strategy actually will work almost universally across the board, once you start getting involved with a contractor, is to never let the contractor hold all of the power, i.e. money. So let me be very clear. If a contractor says he wants half down before he starts, make sure that all of the "materials" that he's going to order are actually there, and let him actually get started doing the work, and then get that half down. If the contractor needs your money to finance your project, that could be an indication that financially he doesn't have credit with his suppliers, or, he's just not financially in a good situation. And a contractor that's not in a good situation is not always the best kind of contractor to work with. So make sure that you hold the cards, you hold the power and basically, you hold the money. So at any point in your project, the contractor should have more invested into your project that you have money into your contractor.

Speaker 1: Now this is great for you the customer, not so hot for us contractors. The contractors that run their business the right way, do good work and establish good relationships, don't really sweat it.

Speaker 1: So one of the things I wanna talk about is another way that contractors scam the system. We built this retaining wall almost ten years ago. At that time I was one of the top three contractors in the entire Midwest for installing commercial retaining walls. In fact a project like you see behind me, this 4-5000 square foot retaining wall, was just our bread and butter, we would go out on project after project after project, taking on jobs like this, and projects up to 5, 10, even 50,000 square feet at a time. We're talking about projects that average anywhere from $100,000 to $500,000. And there's a reason why I'm bringing this up, because it's not just small contractors who do this, it's big contractors.

Speaker 1: Now the guys that I was competing against on projects like this that you see behind me, had a strategy. And that strategy was to come in low and then once you got your foot in the door, you would wait, ready to strike for the very first thing that went wrong or changed on a job, because on a project like this, a lot of things change.

Speaker 1: In fact, there's such a science to this idea, that you can actually look at the job specs before a project ever starts, and almost know exactly where things are going to change, so you can formulate your contract to optimize, to get ready, for those changes.

Speaker 1: And one of the things that is very typical, one of my competition who still does this today, would be to bid a job like this and then to bid it at break even. Knowing that he is not going to make a dime on this main install. But as soon as any small minor change, like you see this stripe there we installed. That's a change, but for us it wasn't a big change, it's just a change in color in the block. Structurally it didn't affect anything. But if he had gotten this job, there would be an automatic change order that would trigger a dramatic increase in price. All of his profits on every single one of his projects, would be built off from knowing that as soon as you got your foot in the door, you can trigger change orders. You can make suggestions and when you get a change order, you can jack that price up.

Speaker 1: So one of the strategies, even goes on today with commercial contractors is to bid low, get your foot in the door, make sure your contracts are secured, and then look for ways of changing the project which can trigger that change order because what'll happen, is the person that's hiring you isn't going to wanna have a bid put in, or multiple bids put in, on that change order, they're just automatically going to give you the work. They're automatically going to hand over the project or the change order to you, the contractor, and that's where this, still does it today, they take advantage of their customer and the fact that they are already locked into a contract and so any change orders is where all of their profits are made.

Speaker 1: So the first thing some of you guys should be asking is, "How can this guy get away with this, year after year, on job after job, and continue to do it?" Well, let me break down the infrastructure on how a commercial job site works, which is a lot different than how a residential job site works, and then you'll understand how he can continue to get away with this.

Speaker 1: On a commercial job site, a subcontractor like myself may have a contract for about a hundred thousand dollars to install a retaining wall. Well, that contract is not directly to the owner, it is actually to a general contractor, who oversees the entire project. Now this project might be worth 10, 15, 100 million dollars, so a hundred thousand dollar contract is no big deal, it's a drop in the bucket. And so when the subcontractor asks for a change order, they're asking for more money but the money's not coming from the general contractor, the money's actually coming from the customer that the general contractor represents.

Speaker 1: Now that general contractor has a job, to do the best he can for the customer, but when it's a drop in the bucket, a lot of times the details get lost, and remember, he's not technically spending his own money in any way, shape, or form. So he's not always as worried about doing the very best job at dotting the i's and crossing the t's, and making sure that those change orders are in line with what the original contract wanted.

Speaker 1: It's easy to slide underneath the radar and to get those change orders, and to get a lot of extra money out of those change orders, and that's how exactly this other contractor has been doing it, job after job, year after year, and getting away with it.

Speaker 1: I think our work still looks damn good after ten years. What do you guys think?

Speaker 1: We've got our truck driver attempting to use the Beak and load boulders for the first time. We're gonna sneak over the hill and see how he's doing. This could be a slow and painful process. All right, in this last situation that we're looking at guys, the simplest way to protect yourself is when you formulate your contracts, have all of the details outlined. In fact, when I put my contracts together, to protect myself as a contractor and to protect my customer, I will literally go through and line item everything that's included in my scope of work. But here's something that I do that some of you guys are gonna think is really weird, but really works. I go through and I line item everything that's not included in my scope of work.

Speaker 1: If I'm doing landscaping, if facade is included or if facade is not included. If there is access retaining wall block that's not included. Anything that actually pertains to the job, that could potentially come up and be a question, in the customer's mind or in my mind, I make sure that I point out directly in writing, in the contract.

Speaker 1: If you're a customer this is going to save you, make sure that you understand the entire scope of work that the contractor is providing, and when you do, then you know that if you make a change outside of that, well, it could-

Speaker 1: It could protect you the customer and the contractor, creating a healthy relationship, eliminating questions and making for a smooth project.

Speaker 1: I don't think he does too bad for his first time using it.

Speaker 1: So as you can tell there's a lot of different ways that contractors hurt other contractors, and contractors hurt their customers. But, now it's your turn. I wanna hear your stories, because I know you guys have had similar but different experiences, and people watching this video are gonna be reading these comments and learning and hopefully protecting themselves, and also, I wanna hear another thing from you guys. Do you want me to make a video on all the different ways that customers use to screw over contractors? Because that exists just as well.

Speaker 1: How's the oil change going [Xander 00:19:15]?

Speaker 3: Going.

Speaker 1: All right. So let me know on the comments down below if you wanna see that, and share your stories and experiences. God bless you guys, go get 'em.

Speaker 1: I think I have squirrels living in my roof. Dude, I know I got squirrels living up there. Look at that. Yup. And they're coming in right there. I don't think my fox does a very good job of scaring the squirrels away, in fact if she caught one, I don't think she'd know what to do with them. Would ya? You're not a very good squirrel hunter, Storm. Wow, look at this thing! Oh my God. That thing is huge. That is awesome. Dude that thing is so big, look at that. Ah, cool. Ooh, gross, it stinked all over me. Look at that thing, oh come here.

Speaker 1: Believe it or not, this is not the biggest one I've caught. Let's go see if Xander likes snakes. You like snakes?

Speaker 3: Yeah. I think I caught that one a couple of weeks ago. Hi buddy. Hi.

Speaker 1: There's one that we got around here, I call it Godzilla. It's insanely big. I mean for a garter snake it's monstrous. When we were removing the deck, we removed ... oh look at it puffing out its face, trying to make himself look mean. You're such a mean snake, are you a mean snake? Who's a mean snake? You're such a mean snake. Yes you are. Ooh, look at that, ooh, he's gonna puff up. His face is all puffed up. Yes, oh, yeah, you gonna go? Huh? You gonna go after me? No. He's not gonna go after me. All right, I gotta let this guy go, and let you guys get on with your day.